On Tuesday the Chinese government released figures that showed GDP growth had slowed to 9.1% in Q3, its slowest pace for more than two years, and below the 9.2% widely anticipated.
Debate surrounding the Chinese growth story and whether its authorities can successfully manufacture a "soft landing" has gathered pace in recent months and each time data is released the bear’s or bull’s case receives a boost.
But Yousefian, clearly on the side of the bulls, is not deterred by the drop in GDP growth: "If only our own [UK] growth was a quarter of that level. People have overinflated their expectations and naturally when figures do come in the market gets frightened.
"We think inflation, if it has not peaked already, will peak in the next couple of months. After that the government can loosen monetary policy by reducing the Reserve Requirement Ratios, which will enable banks to once again start lending."
Yousefian adds that a drop in the RRR, which he expects to happen in the next three to six months, will be the trigger he needs to build up his overweight position in the region.
Taking his Chinese and Hong Kong exposure together, he said he has just over 8% of his OPM Worldwide Opportunities fund in the region and expects to "nudge that up to 10%" as and when the RRR is dropped.
He rates Fidelity’s EMEA fund run by Nick Price and Lazard’s Emerging Markets fund run by James Donald. For pure China exposure he favours Charlie Awdry’s Henderson China Opportunities fund.
Longer term trends
Peter Lees, F&C’s head of UK equities, is also optimistic on China’s future. He uses his UK Alpha Fund to tap into what he considers to be a sound consumer trend in the country and has recently returned from a trip to scope out the economic situation over there.
“Twenty years ago, the Chinese were reticent to talk politics and business, but now they are openly and excitedly discussing their plans for growing and sustaining a strong domestic economy," he said.
Lees pointed out that China still has a significant way to go to attain the urbanisation already achieved by eastern economies such as Japan and added that Chinese authorities are keen to encourage more of the population to come into the cities.
For Yousefian this will be the most important factor over the longer term: "Chinese policy makers need to ensure they are doing everything they can to encourage migration from rural areas and to continue to nurture the growing middle class."
Note of caution
An area worthy of caution, however, continues to be the shadow banking sector, according to Mona Shah, assistant fund manager of the Rathbones Enhanced Growth fund.
She said data recently showed the shadow lending rate was 11%, compared to the official rate from "bona fide banks" of 6.5%, a divergence which could be worrying if left unaddressed.
Positive signs for Shah have been the 6% fall in property prices in September and the slump in valuations due to stock market losses in recent months.
"On a valuations basis the Chinese market is on a PE ratio of 9.2x right now and the 10-year average is 13.5x, so it is trading on a 30% discount to the 10-year average. I think the negative newsflow has been priced in and so we are not taking risk off the table right now," she concluded.
